Beauty and wellness remains a popular sector for venture capital and private equity firms globally. The space is resilient with healthy margins, high recurrence, and multiples, which leads to significant exit opportunities creating fierce competition among investors.

True Beauty Ventures, founded by seasoned beauty veterans and first-time fund managers Rich Gersten and Cristina Nuñez, closed a $42 million fund to invest in early-stage beauty and wellness businesses. The fund came in above their original $30 million target, and will make $1 million to $5 million in investments. To date, True Beauty has made six investments across categories with an ultimate goal of about 12 brands. Current investments include Aquis and K18, Crown Affair, Kinship, Feals, Maude, and a pre-launch prestige clean color cosmetics brand.

BeautyMatter caught up with Cristina Nuñez and Rich Gersten for a deep dive into their vision and business thesis for True Beauty Ventures.

What was the impetus for starting the fund and how did you both come together?

The impetus for starting this fund began when Cristina and I socialized the idea of this fund over four years ago at a dinner in NYC. I was not ready at the time to go out and start my own firm but when the time came, the only call I made in selecting a partner was to Cristina. She and I have worked together for over 10 years. First at Catterton and then again at Tengram, where Cristina was on the investment team with me. While at Tengram, she asked for some operating experience and she took a role at one of our portfolio companies, Laura Geller Beauty, where she held various roles throughout the organization in her three years there. Our unique combination of beauty investing and operating experience is a real point of differentiation in the market.

The strategy was borne out of 10 years of personal frustration, having met so many amazing founders and brands over the years and not being able to invest in any of them because the amount of capital they were seeking was much lower than the minimum check size of the funds I worked for. The white space we identified was a lack of institutional investors with sector expertise in beauty and wellness that could write a $1-5MM check. It did not exist. We purposefully raised a fund of this size to make these size investments meaningful to the fund. Since launching over a year ago, I can say the white space and our unique point of differentiation are even more real than I envisioned at the outset.

What's your core business thesis and what's the profile of companies you invest in?

Beauty is our business. It's all we do day in and day out. Our core business thesis is centered around our unique sector specialization that is very difficult to replicate because it reflects decades of cumulative subject matter expertise, knowledge, and network—aka the benefit of focus. We call this our "unfair advantage" because not only does it give us direct access to very interesting opportunities, but it also affords us the judgement to make smarter bets in this category and deliver outsized returns to our LPs.

As it relates to the profile of the companies we invest in, as a sector-focused investor, we have the ability to be stage agnostic. The beauty ecosystem we have created allows us to view each potential investment opportunity with a more holistic, 360-degree lens. That means we can invest at the Seed, Series A, Series B, and even Series C if we can identify that a company is at an inflection point of breakout growth potential. Generally, we like to see some proof of concept and commercial traction ($1-2 million in sales) and an omnichannel growth strategy that is focused on narrow, productive distribution and product assortment. But most importantly, it's all about the brand and founder and their proven ability to connect with their consumers and deliver outstanding product that keeps them coming back.

You closed the fund having raised $42 million well above your $30 million target. Your investing thesis is what differentiates you—did it make it easier or harder to fundraise?

Both, actually, depending on the audience. When we spoke to beauty "stakeholders" (beauty founders, executives, and other individuals in the beauty ecosystem), the conversations were some of the easiest ones we had. Beauty people very easily understood our strategy, the white space in the market, and the need for us to exist. They were excited to jump onboard and, in most cases, we got to a "yes" on the first call.

However, the same could not be said for more traditional institutional LPs. The very specific sector strategy, coupled with our small fund size, was a deterrent in a lot of cases. It was a challenge having to explain why the beauty and wellness industry was so exciting and why it wasn't a "niche" market. Most institutional LPs are overwhelming older white males as well and this sometimes presented a challenge when articulating the benefit of beauty investing, the female and diverse founder focus, and how it could deliver lucrative returns … trigger the big blank stare! Luckily, we were able to find some incredible banks, family offices, and other institutional LPs where this did not present as much of a barrier because they believed in us and in our ability to utilize our unique sector expertise to win in this market.

From an investor’s standpoint, what makes a good founder and what do you look for in a founding team?

We tend to gravitate towards founders that view us more as strategic partners as opposed to just institutional investors. We look for founders who have a clear vision of what they want their brand to be and how to create a viable business model around it. Passion, grit, and determination are all characteristics that each of our brand founders possess. We like asking founders what they think their "superpower" is and how they capitalize on their areas of strength while augmenting their areas of weakness.

If we get the sense that a founder is not looking for a deeper level of partnership to leverage our specific expertise, then we know they are not the right partner for us, despite how attractive their business may be. We really like when founders do their homework on us too. It's so important given this is arguably one of the most important decisions a founder makes in their life.

What are the elements you look for when you are contemplating a pre-revenue investment versus a business that is already in the market?

We really do not look at pre-revenue businesses. We have made one investment to date at this stage, but it was a very unique circumstance. Can't share much about it yet as it is about to launch later this year, but when it does, you'll understand why we chose to invest.

Here are some of the characteristics we look for in brands in the market:

• Authentic brand and founder story: Compelling, differentiated, and genuine story for why the founder launched this brand and what sets it apart from the rest.
• Superb product: Efficacious product that provides real results. We prefer brands that perform while using safe, nontoxic ingredients.
• Engaged and loyal following: Strong consumer adoption with good social following and engagement as well as strong customer reviews and repurchase rates.
• Strong commercial traction: Brands that are beyond proof of concept and have demonstrated measurable growth; usually around $1-2MM of sales.
• High product margins: Brands that have attractive product costs relative to MSRP, usually around 10%-15%.
• Path to profitability: Good unit economics to start with a clear path to overall profitability within the first 1-2 years post-investment.

As with most investors, I'm sure you're inundated with pitches and must have a way of weeding through them. What are the red flags or pain points you look for when assessing brands?

We are so fortunate that because of our expertise we are often looked to as potential investors in many beauty or wellness companies. We have a very detailed criteria check list that we use to evaluate the potential brands. Since we are so focused on the beauty and wellness sector, and specifically consumer products within these categories, we are able to weed out some inbounds just from these factors alone.

We otherwise will look to make sure the brand has a loyal community, efficacious product, strong product margins, and genuine founders who are looking for key strategic partners. We are often able to weed people out after a first interaction based on some of these criteria alone. However, something we feel very strongly about is trying as best as we can to respond to every one of these inbounds. While our curated portfolio will be very tight, we believe in supporting other founders and the overall industry and like to offer advice to those who reach out when we can.

Are there any shifts in how you evaluate investments as a result of the pandemic?

While our baseline focus areas have not necessarily shifted, we do look to see how brands have responded in the pandemic to their customers, potential retailers, and their overall growth. We also have specifically looked more recently to the way brands are acquiring and retaining customers as behaviors are shifting and social media advertising has become an even more competitive playing field. We want to make sure that the brands we partner with are not only able to acquire customers but have developed deeper relationships that keep the consumers coming back to repurchase. We also strongly believe in an omnichannel strategy, and while last year it was harder to see those benefits when many stores were closed, we would expect our partner brands to have key anchor retail partners or searching for those as they build their brands.

Do you factor ESG into your evaluation of potential investments, and if so, how?

​Some of the core criteria we focus on when evaluating brands are focused on transparency, sustainability, and ethical and moral founders and teams. We believe that consumers have evolved and will continue to demand more than just product from the brands they purchase from. We would expect the brands we look to partner with are on par with current beauty industry standards, if not further along. Ultimately, we will partner with good people because that is our final check. We want to support those who have good relationships and are strong supporters of their teams and broader communities. We want to help grow mission-driven brands that also have efficacious product, and we do not believe in sacrificing one for the other.

What advice would you give to a company or founder wanting to pitch you?

We believe one of our biggest value-adds as a strategic partner is to help founders avoid costly mistakes, which results in both a time and capital efficiency. Therefore, when we evaluate an opportunity early on, we identify if the founder/company has already made costly mistakes.

Here are some of the most common mistakes we have seen indie beauty brands make:

• Protect your trademarks: Beware of the squatters! Grab your domestic and key international markets early before you gain bigger brand awareness.
• Don't be seduced by purchase orders: Focus on productivity and depth of expansion with a key anchor retail partner that will help you brand build.
• Formulate products with COGS and margin targets: Hard to fix this retroactively and scaling profitability is more important than topline growth at all costs.
• Stay true to your story and values: Modern consumers care about mission- and values-driven brands and can sniff out inauthentic brands.
• Make your consumer your North Star: From your PD to your CX and everything in between. Listen, respond, and track the entire consumer journey.
• Don't underinvest in supply chain and operations: Underestimating inventory requirements, lack of processes and planning, and inadequate backend support will eventually catch up with you. Build your team appropriately.

You've both been in the beauty and wellness space awhile. What excites you about the beauty and wellness landscape in this moment?

We love this industry because it continues to rapidly evolve driven by consumer demand for innovation, transparency, sustainability, authenticity, and social and environmental change. These shifts have led to the stronger penetration of DTC beauty brands, the emergence (and now convergence) of wellness with traditional beauty and personal care categories, and the blurring of distribution channels with partnerships like Ulta/Target and Sephora/Kohl's. We are really excited about the rise of technology and science in beauty and wellness that will further push the boundaries of product efficacy and personalization. We see the modern consumer shopping for a more holistic approach to self-care that views inner health and outer beauty as one in the same. We think these trends and others will continue to create attractive growth dynamics for the beauty and wellness industry in the near and long term.